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Why Disclosure Matters: Unlocking the Benefits of the Chicago Energy Use Benchmarking Ordinance

July 12, 2013

On June 26, 2013, Mayor Emanuel introduced the Chicago Energy Use Benchmarking Ordinance to City Council. The ordinance would require the city’s largest municipal, commercial, and residential buildings to track and report their energy use, a process which phases in over several years. As is evident from this statement of support from more than 80 businesses and organizations, stakeholders from many sectors strongly support benchmarking and disclosing energy use because it provides building owners and managers with information to run their buildings more efficiently. The following is to address questions that have been raised about the need for the disclosure portion of the ordinance.

Benchmarking and Disclosure Work Hand-in-Hand.

Benchmarking in this policy means tracking a building’s energy use through ENERGY STAR Portfolio Manager, a nationwide tool administered by the Environmental Protection Agency (EPA). The toolanalyzes energy use relative to similar buildings by calculating metrics such as energy use intensity, greenhouse gas emissions, and relative energy performance when compared to other buildings in the U.S. Department of Energy’s nationwide database. There are over 260,000 buildings benchmarked in Portfolio Manager, and this data helps building teams manage the performance of their buildings.

Disclosure of energy performance drives greater transparency, awareness, and consideration of building efficiency in the marketplace. The concept is similar to the miles-per-gallon (MPG) fuel economy metric used for all automobiles. Consumers shopping for a car can consider its MPG along with other aspects like price, size, style, safety ratings, resale value, and options. Similarly, a prospective tenant, when determining where to work or live, would be able to consider reported benchmarking information along with other features like location, square footage, price, architectural style, age of the building, and amenities. The disclosure piece of the proposed ordinance is integral to ensuring that there is transparency in the open market so that consumers can consider energy efficiency when making choices.

Older and Historically Significant Buildings Are Not Disproportionately Impacted by Disclosure.

Some have raised a concern that older and historically significant buildings would have lower Energy Star scores than other buildings, resulting in a competitive disadvantage. This concern is not substantiated by data on tens of thousands of buildings that are already benchmarking energy use through Portfolio Manager. More than one-third of the 20,000 nationwide buildings receiving ENERGY STAR certifications (recognition for top performers) were built in or prior to 1980. Buildings of all ages can become top energy performers.

In New York, the city’s first report on the implementation of their benchmarking and disclosure ordinance found that skyscrapers built prior to the crash of 1929 used 40 percent less energy per square foot than the newer office buildings. In fact, New York office buildings from each 20-year period after 1929 used more energy than the last, with buildings constructed after 1991 consuming the most energy.

Buildings with Lower Scores Often Have the Greatest Opportunity for No-Cost/Low-Cost Energy Efficiency Improvements That Will Boost Scores.

Undoubtedly there will be some buildings with low scores initially. Some of these buildings may also lack significant financial resources to implement costly changes. Improving energy performance, however, often has very positive impacts on the costs of owning and operating the building. And buildings with lower scores typically have the most to gain from no- and low-cost efficiency improvements. First Fuel, a building energy analytics company, found that “half of commercial efficiency savings potential resides in operational improvements – many of which can be implemented immediately, and at little or no cost to building operators.”

Further, Chicago’s electric and gas utilities, ComEd and Peoples Gas, provide financial incentives for commercial and residential building space to implement energy efficiency improvements. These incentive programs, coupled with private sector financing, can create low-cost opportunities for buildings to make small improvements that will save significant money in the long run. For instance, lighting is close to 35 percent of the electricity used in commercial buildings in the U.S. Typically, lighting improvements have very short payback periods (the amount of time it takes for the improvements to start saving money). Better lighting reduces energy use and saves lots of money on electricity bills long-term. Importantly, because the ordinance does not allow disclosure of the first year’s data, buildings can implement no- and low-cost solutions and publicly disclose better metrics the following year.

Making Energy Use Public Creates Opportunities to Focus Resources.

When a building benchmarks its energy use, it uncovers improvement opportunities. But some of these buildings may have financial constraints. Much of my work is dedicated to ensuring that ComEd and Peoples Gas create the best programs possible, targeting customers and measures that would lead to the most energy and monetary savings. However, the programs are only as good as the data used to create them. And often, there is not much data on buildings that actually could benefit the most from utility incentive programs. High-quality and consistent data on building performance allow utility-run energy efficiency programs to target rebates and incentives to buildings where there is the most potential for savings.

In short, disclosing the energy use of buildings in need of energy improvements will create tailored and effective incentive programs for the benefit of those very buildings. Further, this data would also help private sector financing organizations work with buildings to finance efficiency projects in innovative and effective ways. In turn, the market for energy efficiency services would grow, creating more jobs in Chicago to meet this new demand.

Benchmarking and Disclosure Ordinances in Other Cities Are Already Producing Positive Results.

Detractors of benchmarking and disclosure often point to a report published earlier this year by the Analysis Group consulting firm concluding that “there is currently no real evidence that these mandatory programs lead to any changes whatsoever in energy use.” But the report bases this conclusion on a single Dutch study, which addresses a different real estate sector (homes) in a different regulatory scheme, and is therefore of little value in evaluating the current proposal.

Benchmarking and disclosure ordinances have taken off in recent years in U.S. cities, which means that we are in the relatively early stages of analyzing the results of the policies. That said, early evidence strongly suggests that benchmarking and disclosure in the United States is producing extremely positive results. A 2012 EPA analysis of 35,000 benchmarking buildings throughout the nation found that these buildings saved, on average, 2.4 percent annually in energy use. Over the three years, benchmarked buildings saw an average energy savings of 7 percent.

A 2012 report by the Georgia Tech Ivan Allen College School of Public Policy determined that benchmarking in commercial properties could reduce national energy consumption by 5.6 percent in 2035. Another 2012 report commissioned by the California Public Utilities Commission, found that there was a high correlation between benchmarking and building energy improvements, and that benchmarking was a strong catalyst for participation in utility rebate and incentive programs. And a June 2013 paper published by the New York Academy of Sciences concluded that “the potential for energy disclosure policies to shift market awareness of building energy efficiency is substantial,” just as similar policies like miles-per-gallon ratings had done in the market for automobiles.

Let’s Seize the Opportunities Disclosure Will Create.

The Chicago Energy Use Benchmarking Ordinance represents a win-win-win opportunity for Chicago’s real estate community, energy industry, and general public. All large building owners and operators will be armed with consistent and accurate information on building energy use supporting them to take voluntary action to save energy and money; prospective tenants would be able to consider a building’s energy use as one of the many factors they weigh when determining where to work or live; and the city would benefit from potential job growth and lower greenhouse gas emissions from energy efficiency improvements. But these benefits are only possible if benchmarking information is available to the public and the marketplace. Chicago is undoubtedly a leading sustainable city in the nation, and we are ready for this next step in greening our skyline.